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Stora Ensos Strategic Responses Esko Mäkeläinen, CFO 12 May 2005.

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Presentation on theme: "Stora Ensos Strategic Responses Esko Mäkeläinen, CFO 12 May 2005."— Presentation transcript:

1 Stora Ensos Strategic Responses Esko Mäkeläinen, CFO 12 May 2005

2 UPS2 It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by believes, expects, anticipates, foresees, or similar expressions, are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Groups targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Groups patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Groups products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Groups principal geographic markets or fluctuations in exchange and interest rates.

3 Financial Figures

4 12 May 2005UPS4 Highlights Q1 2005 IV/2004I/2005 Sales, EUR million 3 241.9 3 144.9 Operating profit*, EUR million 41.4 112.7 EPS, EUR 0.180.07 EPS*, EUR 0.030.07 Cash EPS*, EUR 0.38 0.41 Debt/Equity0.380.51 *) excluding non-recurring items Continued strength in demand Moderate price increases In Publication Papers 134 000 tonnes production lost due to rebuilds –EBIT effect EUR -32 million Higher deliveries in Fine Paper and Packaging Boards Non-cash items regarding emission rights and share-based payments amounted to EUR -6.6 million

5 Financial Figures

6 12 May 2005UPS6 EUR million2004 I/04 IV/04I/05 Sales12 396 3 018 3 2423 145 EBITDA*1 511 393 331389 Operating profit*339 102 41113 Operating profit709 218 221113 Profit before tax*272 80 2384 Net profit741 405 149 59 EPS*, EUR0.26 0.06 0.030.07 EPS, basic, EUR 0.89 0.49 0.180.07 CEPS*, EUR1.67 0.41 0.38 0.41 ROCE*, % 3.0 3.7 1.54.1 Debt/Equity0.380.390.380.51 Summary Financials *excluding non-recurring items

7 12 May 2005UPS7 Net Financial Items EUR million I/04 II/04III/04IV/04 I/05 Net interest-42.0-34.9-31.8-32.6-27.6 Foreign exchange profit/loss4.8-1.6-1.5-2.85.7 Valuation of financial instruments13. Other financial items3.34.40.6-4.2-2.0 Total-20.3-26.2-27.0-32.5-43.1 excluding non-recurring items

8 12 May 2005UPS8 Tonnes2004I/04II/04III/04IV/04I/05 Publication Paper Europe 240 00093 00074 00021 00052 000 9 000 North America Fine Paper Europe 36 00012 0008 0003 00013 000 1 000 North America 7 0007 000 Packaging 81 00020 00016 00037 0008 000 2 000 Total 364 000125 00098 00061 00080 000 12 000 Market-Related Production Curtailments

9 12 May 2005UPS9 Change in EPS IV/2004 vs I/2005 EUR 0.3 0.04 -0.02 0.07 excluding non-recurring items -0.04 -0.03 -0.01 0.03

10 12 May 2005UPS10 Operating Profit by Quarter EUR million excluding non-recurring items *no goodwill amortisation in 2005 ** structural effect from Swedish forestland **

11 12 May 2005UPS11 Debt/Equity Target < 0.8

12 12 May 2005UPS12 Current programme approved by AGM 2005 to end 21 March 2006. Allows repurchase up to : A shares 17 900 000 R shares 62 150 000 Status through 3 May 2005: Number of Average % of Shares shares purchased: purchase price: authorisation A shares19 200 10.86 0.1 R shares 7 677 60010.6912.35 2002 2003 200415 Apr 2005 Total shares in issue: 899 778 299 864 262 499 837 243 399 812 977 099 Share Buy-Back Programme

13 12 May 2005UPS13 Capital Expenditure and Depreciation Capital expenditure Capital expenditure as % of sales EUR million Depreciation

14 Improving Profitability

15 12 May 2005UPS15 Continuing Profit Enhancement Asset Restructuring in Europe –Kvarnsveden PM 12 still to be completed North American Profit Enhancement Programme –Almost completed European Profit Improvement Programme to be initiated

16 12 May 2005UPS16 Programme for Profit Improvement Having completed a major asset restructuring programme of Stora Ensos European units, it is time to gain the benefits Capex to be kept at or below depreciation; opportunities in emerging markets will be emphasized In an environment of low industry profitability, tighter competition and a weaker US dollar, Stora Enso is intensifying its efforts for improving profitability mainly at its European operations

17 12 May 2005UPS17 Main Targets for the Programme Target to improve profit before tax by EUR 300 million based on 2005 price and cost levels The programme consists of: –Efficiency improvements in production, sales and logistics –Improvement in working capital management –Cost cuttings in sourcing and administration There may be closures or disposals of units with specifically high costs or low long-term earnings potential; redundancies may occur The programme will start immediately and have the full targeted impact on profit by mid 2007 onwards

18 Market Outlook

19 12 May 2005UPS19 Near-term Market Outlook Western Europe Price Demand Comments Magazine Papers SC CMR Newsprint Fine Papers WFC WFU Packaging Boards Wood Products Demand good; prices have increased 3-5 % in local currencies Demand improving; price increases for some segments announced Demand improving; sheet prices under pressure due to overcapacity Firm demand outlook; price increases in consumer boards, corrugated boards prices under pressure Demand improving seasonally; prices stable Demand good; prices have increased 3-5 % in local currencies Demand good; prices have increased 5-8 % in local currencies

20 12 May 2005UPS20 Price Demand Comments Near-term Market Outlook North America Magazine Papers SC CMR Newsprint Fine Papers WFC Demand strong; price increases expected in Q2 Demand good; price increases expected in Q2 Demand rather weak Demand good; price increases expected in Q2 for reels

21 Stora Ensos Strategic Principles

22 12 May 2005UPS22 Strategic Goals and Financial Targets Key principles: ROCE target: 13% over the cycle Debt/Equity ratio: 0.8 Capex: annual depreciation over the cycle Dividend policy: distribute on average one half of net profit over the cycle Strive to achieve top­quartile asset quality Profit growth Increase the size of the packaging boards business within the Groups portfolio To become closer to the customer and end-user in the value chain

23 12 May 2005UPS23 M&A Strategy Guided by Discipline Must support core business development Provide customer, production or other synergies EPS and CEPS accretive, post synergies, after year one In the near term, returns must surpass our weighted average cost of capital (=@8.7% pre-tax) In the longer term, must clearly support our continuing ROCE target of 13% over the cycle

24 Recent Acquisitions

25 12 May 2005UPS25 Stora Enso Strengthens its Distribution Channels Acquisitions: –Dutch paper merchant Scaldia Papier (2004) –French paper merchant Papeteries de France (PdF) (2005) Announcement of the acquisition of Schneidersöhne Group –Stora Enso has signed a memorandum of understanding to acquire 100% of the shares in the German paper merchant Schneidersöhne Group –The strategic aim of the acquisitions is to bring Stora Enso closer to the customer and end-user in the value chain and to improve the profitability of its merchant business –All-cash acquisition is expected to be completed during the third quarter of 2005, subject to due diligence and approval by regulatory and competition authorities

26 12 May 2005UPS26 Combined Operations of Papyrus and Schneidersöhne Source: Eugropa Papyrus Schneidersöhne Papyrus + Schneidersöhne

27 12 May 2005UPS27 Schneidersöhne Group In brief By sales volume the second-largest paper merchant in Germany and the fifth-largest in Europe Net sales EUR 1 130 million in 2004 Sales volume 1 100 000 tonnes of coated and uncoated fine paper in 2004 Operations in 11 countries –Biggest markets: Germany and Switzerland –38 branch offices, including 20 in Germany 2 100 employees

28 12 May 2005UPS28 Schneidersöhne Group Financial Effects Enterprise value of the company is estimated to be EUR 450 million Stora Ensos EPS will initially be improved by EUR 0.02 and CEPS EUR 0.03 Stora Enso debt will increase by the enterprise value of Schneidersöhne, approximately EUR 450 million The debt/equity ratio will increase by 0.06

29 12 May 2005UPS29 Acquisition of Intercell Stora Enso acquired 66% of the shares in the Polish packaging producer Intercell S.A. from private shareholders and the International Finance Corporation based in Washington D.C. Rationale for the acquisition: –Supports the expansion of Stora Ensos corrugated packaging business –Strengthens the company presence in the fast- growing Polish market

30 12 May 2005UPS30 Intercell – Key Facts Sales by Division Sales EUR 150 million, EBITDA EUR 27 million (2003) About 1700 employees Operations mainly in Poland Fully owned subsidiary Intercell Recycling is the largest player in recovered paper business in Poland (mainly OCC) Pulp & Paper 40% Corrugated Board & Boxes 44% Sacks 16%

31 12 May 2005UPS31 Production Locations Poland and Serbia Ostrołęka Head office Pulp and Paper mill (250 000 tonnes) Corrugated board and boxes Sack Łódź Corrugated board and boxes Tychy Corrugated boxes Šabac Sack Mosina (in the near future) Corrugated boxes (sheet plant) +Marketing office in Warsaw and 20 recycling locations around Poland Ostrolęka Tychy Warsaw Łódź Mosina Šabac

32 Emerging Markets

33 12 May 2005UPS33 Stora Ensos Focus in Emerging Markets Low-cost local resources (raw materials, labour) Fast economic growth, low GDP per capita Focus areas for SE Brazil Chile Argentina Large, fast growing market Fibre resources Low fibre costs China Russia Growing market

34 12 May 2005UPS34 Paper and board consumption, kg/capita Demand Growth in Emerging Markets China Population, mill. 2000 2015E 2000 2015E 1 282 1 418 29,8 51,4 Brazil Paper and board consumption, kg/capita Population, mill. 167 198 42,8 59,4 Paper and board consumption, kg/capita Russia Population, mill. 145 133 22,9 52,7 Almost double in 15 years More than double Increase 30% Source: Jaakko Pöyry Consulting

35 12 May 2005UPS35 Present Operations in Russia and Eastern Europe Corrugated packaging board mills in Riga, Balabanova and Arzamas 9 new packaging plants in Russia, Hungary and the Baltic States since1995 Intercell in Poland and Serbia Sawmilling mill in Karelia operating since Autumn 2003 Novgorod mill started up in April 2004 5 sawmills in Estonia, Latvia, extensive procurement One sawmill in Alythus, Lithuania Sawmills in Czech Republic Procurement / wood supply from Russia procurement volume in 2004 7.2 Mm 3 /a 2 port terminals, 4 railway terminals 4 logging companies, total harvest 0.4 Mm 3 /a Sawmills Corrugated packaging board and packaging materials Wood procurement focus

36 12 May 2005UPS36 Present Operations in China Fine paper mill in Suzhou –Capacity 240 000 tonnes coated woodfree (including sheeting, in 2005) –Paper sold to Chinese market –Reliant on imported pulp Core factory in Hangzhou –Capacity 10 000 tonnes –Cores sold to different industries: plastics, paper, etc. Joint venture with Shandong Huatai Paper Plantations in southern China Core board Fine paper mill Sales office Plantations JV

37 12 May 2005UPS37 Present Operations in South America Veracel – a joint venture together with Brazilian pulp maker Aracruz, based in Rio de Janeiro –A new pulp mill now under construction with 900 000 tonnes of annual capacity –Production from May-June 2005 –70 000 hectares of eucalyptus plantations –Stora Ensos share of production intended for captive use South American division office in Sao Paulo Sales offices in Sao Paulo, Santiago and Buenos Aires Veracel Aracruz Sao Paulo Sales office Division office

38 12 May 2005UPS38 Veracel Before

39 12 May 2005UPS39 Veracel Now

40 12 May 2005UPS40 Harvesting in Veracel

41 General view

42 12 May 2005UPS42 Consolidating Veracel Veracel will be consolidated as Associated Company according to equity accounting method –Profit shown in Stora Ensos financial items Stora Enso buys the pulp from Veracel at a price; cost plus premium Stora Enso Amsterdam invoices Stora Enso mills –Stora Enso Amsterdam will be consolidated line by line (shown in EBITDA) in Fine Paper segment –Cash flow will be inside Stora Enso The cost for Stora Enso mills is the market price of pulp

43 Appendix

44 12 May 2005UPS44 Operating Profit of Main Business Areas EUR million I/04II/04III/04IV/04 I/05 Publication Paper 8.7-3.848.2 38.2 20.0 % sales 0.9-0.44.4 3.3 1.9 Fine Paper 18.14.627.9 13.7 47.8 % sales 1.7 5.7 Packaging Boards 82.167.784.8 43.0 73.7 % sales 11.99.612.6 6.1 10.2 Wood Products 11.421.310.9 -8.9 -4.0 % sales -2.3 -1.1 excluding non-recurring items

45 12 May 2005UPS45 EPS by Quarter EUR excluding non-recurring items 0.00

46 12 May 2005UPS46 ROCE by Quarter % excluding non-recurring items Target > 13% over the cycle (current WACC 8.7%)

47 12 May 2005UPS47 Change in Group Operating Profit from IV/2004 to I/2005 EUR million 41.4 44.6 -41,6 -20.2 -18.8 112.7 excluding non-recurring items 24.0 83.3

48 12 May 2005UPS48 Change in EPS I/2004 vs I/2005 EUR 0.06 -0.02 -0.01 0.07 -0.06 0.02 0.07 0.03 -0.02

49 12 May 2005UPS49 Change in Group Operating Profit from I/2004 to I/2005 EUR million 102.1 81.4-72,9 -19.2 26.4 -2.8 112.7 excluding non-recurring items -25,0 22.7

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